Nutmeg investor update – September 2016

Shaun Port

read 3 min

August, perhaps unsurprisingly, has been a more subdued month in markets. Towards the end of the month, and into September, both bond markets and equity markets have become a little choppier. September tends to be the most volatile month of the year, so this is generally expected.

How have portfolios been performing?

The month of August was reasonably good in terms of portfolio performance, with most portfolios, apart from the very lowest risk, gaining around one to one and a half percent. So far into September we’ve seen some small losses, and we could see more volatility in markets as we get closer to the US election.

Have you made any changes to portfolios?

We didn’t make any strategy changes in August, however we did take the opportunity to switch some of our investments in UK government bonds over to new, cheaper ETFs. We judged the new ETFs, provided by Luxor, to be high quality, giving us great exposure to the UK government bond market at a much lower cost to our customers.

We go through an exhaustive process when selecting our ETFs. Find out more about how we choose our ETFs.

Portfolios are currently positioned quite cautiously. We hold a larger amount of cash than we usually would, and we also hold some gold.

Why are you so cautious at the moment?

With some large risk events coming up on the horizon, we’re carefully considering the next market opportunity for our customers.

The US election is happening in November, which isn’t far away. While markets aren’t pricing in the chances of a Trump victory, we know from Brexit that unexpected outcomes can occur and can cause big shocks to the market. We feel it’s prudent to remain cautious now, just as we did before Brexit, but we’re planning beyond the end of 2016 to assess what the outlook might be for next year.

The US federal reserve is due to raise interest rates in either September or December and this could also have an impact on global markets.

Questions from our customers

Currency risk is something we spend a lot of time analysing within our portfolios. Currencies can have a large impact on portfolios because, even when the underlying asset is performing well, an adverse currency movement can wipe out any gains.

Overseas currencies have really helped portfolios since Brexit and we’re looking to take some of those exposures out over the next few months to reduce the risk that they will increasingly represent.

Sean Alexander: Broadly speaking, how would a “hard exit” of the EU affect portfolios?

Assuming that “hard exit” in this case refers to the UK not securing access to the single market, this would be bad news for both the UK and the EU.

That would be a very severe situation for the UK, with the likelihood of the pound falling sharply and falls in the FTSE 100. Government bonds would do quite well in that situation. Longer term we’d expect larger UK companies to recoup performance and regain access to those markets, so the FTSE 100 would be most likely to recover in the long term, but such a move could affect smaller UK businesses for a long time.

It’s worth stating that’s certainly not the outcome we’d anticipate, so while it’s a low level risk on the horizon we’re planning for a more suitable deal with the EU.

About this update: This update was filmed on Wednesday 15th September and figures cover the entire month of August unless otherwise stated. Data sources: Bloomberg and Macrobond.

Risk warning: As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Past or future performance indicators are not a reliable indicator of future performance.


Shaun Port
Shaun is the chief investment officer at Nutmeg. He has over 25 years’ experience developing and implementing investment strategies for clients ranging from central banks to pension schemes to charities and private individuals. Shaun holds a degree in Mathematical Economics from the University of Birmingham and is a Chartered Alternative Investment Analyst. He can be found tweeting @ShaunPort.

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